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Whirlpool, On-Shore Production, and Employee Talent

According to an article in today’s Wall Street Journal, Whirlpool plans to build a new factory in Tennessee, which will be “the centerpiece of a $300 million upgrade of domestic manufacturing facilities” for the company. The article goes on to say: “The move highlights a shift by even export-driven U.S. manufacturers away from low-cost overseas locales in favor of rationalizing domestic operations to boost productivity.” In Whirlpool’s case, the company had considered building the factory in Mexico.

The move towards manufacturing or sourcing products closer to home has been happening for a few years, accelerated in part by the record high oil prices in 2008 (which caused transportation costs to skyrocket), demand for faster lead times, and quality issues in foreign factories that have trigged a continuous wave of recalls (see Boston Globephoto gallery of recently recalled consumer products).

In a Supply Chain Management Review article from January 2009 (“Does Offshoring Still Make Sense?”), John Ferreira and Len Prokopets from Archstone Consulting make the case that offshoring doesn’t make sense any more in many cases if companies were to conduct a more thorough analysis of the factors involved in deciding where to source from. The authors wrote:

Just when thousands of manufacturers thought that offshoring a significant portion of their manufacturing and supply operations has given them competitive parity, the game may be changing again. The same factors that made offshoring a sure-fire tactic for reducing costs have shifted dramatically and now are eroding many of those savings. As a result, on-shore and near-shore production is now viable and competitive in many cases.

You may want to hit the hold button before moving more of your supply operations off-shore; many manufacturers are finding that the numbers just don’t add up anymore. In fact, a significant percentage of U.S. manufacturers are seriously reconsidering their production and sourcing strategies and even beginning to return manufacturing that they had once moved to low-cost countries.

Today’s news about Whirlpool is a perfect example.

Two tidbits of information from the WSJ article caught my attention. First, Whirlpool has linked product design and development with its manufacturing strategy and factory design. According to the article:

By building washers with more easily changeable components, Whirlpool will able to assemble multiple models and brands from the same plant.

“Just about everything can be changed out,” said Frank Nekic, manager of washing machine development. “You can take one motor and replace it with another. It was much more difficult to create variations within the washers we had.”

We adopted a similar philosophy when I worked at Motorola in the early 90s. By using a common leadframe platform (where semiconductor chips are attached), we were able to build multiple semiconductor products, with minimal changeover requirements, using the same high-volume automation equipment. The net result is not only a more adaptable manufacturing process, but also a more adaptable and resilient supply chain.

The second item that caught my attention was the value Whirlpool placed on employee knowledge and experience in making its sourcing decision. According to the article:

Preserving the Cleveland employees’ training and experience in lean manufacturing was a major consideration in choosing a site, [Al Holaday, vice president for North American manufacturing] said. “Everyone can pretty much duplicate the manufacturing process,” Mr. Holaday said. “What I can’t do is duplicate the experienced work force.”

A lot of companies are reducing their workforce in response to the weak economy, but are they looking beyond “dollars and cents” and taking future demand and supply for talent into consideration? Unfortunately, I think most companies are not.

Kudos to Whirlpool for making employee knowledge and experience a “major consideration” in its decision to build its new factory in Tennessee, where the company has existing operations. It’s not always easy to place a financial value on employee talent, but everyone knows that inexperience and lack of training ultimately translates into productivity and quality issues, which are very costly (especially if recalls are involved) and often difficult and time consuming to fix, especially from half-a-world away.

Comments

A major reason for offshoring is faulty accounting of the comparative costs. Companies have offshored more than is even in their own short term interest. In the Archstone Consulting 2009 survey referenced in the article, John Ferreira mentioned that 60% of manufacturers use only rudimentary methods to calculate offshored product costs and miss at least 20% of the total cost. To help the companies make better sourcing decisions the Reshoring Initiative provides a free TCO (Total Cost of Ownership) Estimator that helps the large companies perform the complex calculation of the real impact of offshoring on their P&L.
U.S. manufacturers are, on average, at least 24% more competitive in their home market than overseas due to the costs of shipping, duty, interest, travel, etc. Accordingly, the most direct way to strengthen manufacturing is to strengthen manufacturing by reshoring. I am quoted in the Aug 6, 2010 USATODAY article (http://www.usatoday.com/money/economy/2010-08-06-manufacturing04_CV_N.htm?csp=hf ) which reviewed in detail the progress of and reasons for re-shoring: bringing manufacturing back to the U.S. We provide a free software to help OEMs make better sourcing decisions, Purchasing Fairs to help them find competitive U.S. sources and publicity to drive the re-shoring trend. The three associations mentioned are the NTMA (National Tooling and Machining Association), PMA (Precision Metalforming Association) and AMT (Association for Manufacturing Technology). The next Fair will be in Mashantucket, CT on Oct 29. See http://www.purchasingfair.com . Large companies bring out work that is now off-shored. Hundreds of attending U.S. shops then bid on the work. Sixty four percent of the large companies at the Irvine Fair brought work that was currently offshored.
For more information, see our temporary website: http://www.reshoringnow.com or email me: harry.moser@comcast.net.